Crude oil prices fall on OPEC supply concerns

Alicia Cross
January 23, 2018

United States crude oil stocks slipped for a ninth straight week, following a record drawdown at the U.S. storage hub in Cushing, Oklahoma, the Energy Information Administration (EIA) said on Thursday. While benchmark Brent crude has gained 2.6 percent this month, USA oil output is set for strong growth this year as prices rally, the International Energy Agency said on Friday.

Several analysts have also predicted USA oil output to break through 10 million barrels per day soon.

"This year promises to be a record-setting one for the USA", said the Paris-based global energy watchdog in their widely anticipated monthly report.

MUSCAT, Oman-Saudi Arabia's energy minister said Sunday that OPEC and other big-oil producing allies like Russian Federation should find ways to cooperate beyond their petroleum-production limits this year.

"Higher oil prices are bringing more supply to the market, particularly in North America and specifically tight oil, including unconventional NGLs [natural gas liquids]", OPEC said in its monthly oil report on 18 January. Oil inventories in the industrialised world have shrunk to a three-year low, according to the International Energy Agency. The production cuts by OPEC and 10 other allied producers, which are scheduled to last throughout 2018, are aimed at clearing a supply overhang and propping up prices.

Over the weekend, OPEC and its allies will convene in Oman to discuss oil production cuts created to decrease market oversupply.

American production is at its highest levels since the 1960s, the agency said.

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"Explosive growth in the USA and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico", the IEA said of 2018 production.

Global oil demand also accelerated at the tail-end of 2017, growing to 97.4 million barrels a day, the result of increased supply from non-OPEC member nations, it added. It also lifted its 2017 global demand estimate to 96.99 million barrels a day and forecast 2018 demand at 98.51 million barrels a day.

"The demand side of the equation is keeping us well-healed", said Phil Flynn, analyst at Price Futures Group in Chicago, who expects oil demand to hit between 1.8 million bpd to 2 million bpd. Total U.S. crude oil production is already expected to break a record at 10 million barrels per day this year.

"Very soon U.S. crude production may overtake that of Saudi Arabia and also rival Russia's", it said.

However, as OPEC continues with its targeted production agreement, the oil has slowly turned from bearish to bullish on Middle East tension and as the market nears rebalancing.

A plunge in Venezuelan supply cut OPEC crude output to 32.23 million bpd in December, boosting compliance to 129 percent.

The country produced 4.397 million barrels per day of crude oil in November, the report read. "At some point soon, USA crude stocks should start building because of winter maintenance, and when that happens, selling pressure could emerge".

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